Sunday, April 27, 2008

Insurance Companies Strike Gold in Illegal Immigrants!

New Mexico passed a law in 2003 that allows illegal immigrants to get driver’s licenses so that the public would be safer. States regularly deny driver’s licenses to foreign citizens no matter what there immigrant status is. Some states like California began tightening their requirements for driver’s licenses, and many immigrants couldn’t renew their licenses, and their car insurance was cancelled automatically.

Some car insurance companies have seen this as a new golden market. Even though many states deny driver’s licenses to illegal immigrants, the law doesn’t prevent insurers from selling insurance to unlicensed drivers and car owners. Big companies like Progressive are writing car insurance for illegal immigrant drivers.

My first reaction to this story was anger. How could those insurance companies reward illegal immigrants with car insurance? But then, I calmed down and began thinking like an insurance claims professional.

The legal arguments about immigration are not my immediate concern, and they shouldn’t be yours, either. The most important thing you should consider is if you get into a traffic accident with an unlicensed driver who has no car insurance.

How many times have you heard a news story that told about an illegal immigrant driver that caused an accident, and then took off on foot, abandoning their car? Sometimes, they’ll beg the other driver to let them pay for damages in cash, just so they are not discovered driving without insurance.

I like the fact that the insurance companies are taking a pragmatic position. Illegal immigrants are going to drive cars in America. Few things will stop them. They are going to drive to and from work whether or not they have a license. Nothing prevents them from owning a car in any state that I know of.

By serving this growing market, the auto insurers are offering protection as they rightfully should. They are staying out of the political fray, and correctly staking their position in the free market.

Certainly, this market of illegal immigrants is high-risk insurance, and so the insurers are charging high-risk rates for auto policies. But that’s no different than charging higher rates for American citizens that have had a DUI. Risky behavior gets you higher rates.

But the insurance companies are finding that the foreign driver segment is very profitable. The insurance companies experience good “retention,” meaning that the policies renew regularly. Just as important is the fact that illegal immigrants seldom report small accidents to lower the chances that they’ll have a brush with the law. Companies like Progressive, Farmers Group, Bristol West, Infinity P&C and Alliance United are putting a lot of effort into expanding this part of their book of business.

So, in this case, I think the insurance companies are doing the right thing. The more illegal immigrants that have car insurance, the more we all will be financially protected.

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